New to BP - question about Seller Financing

4 Replies

Hello everyone! New member here - have found many useful tips & strategies on this site, but was never a member prior to today.

I have a question about seller financing calculations regarding a deal that I'm currently working on.

I'll spare you the full details of the deal, but I've essentially been able to get the seller to open up to a possible seller financing deal that would get me a great cash on cash return of near 20% on a good, solid property on the busiest street in town.

Here's where I'm somewhat stuck (and I hope you can follow). The latest offer we're working on is a purchase price of $400,000. $80,000 down payment due to seller. He wants 10 years of monthly payments around $1,650/mo, then a balloon due at year 10 of $180,000. So total of all payments due to seller would be roughly $458,000. 

Comparing these terms to the best financing I've found through a bank ($320k loan, 5.5% fixed for 10 years then refinance, amortized over 25), with same purchase price and down payment, results in a lower monthly payment by $315/mo, plus my principal balance after 10 years of payments through bank financing would be $240,000, compared to the $180,000 balloon that the seller wants at year 10. 

Given the seller financing details above, I know that an amortization table should show me paying $140,000 principal and roughly $58,000 interest over the 10 years of monthly payments, but how can I calculate the exact amortization schedule with principal/interest breakdown per payment? Guess and check base don various interest rates and amortization period? I'll also post this in the loan section but was hoping someone may have done a deal similar to this in the past and could help! Thank you all!

Originally posted by @Joseph Parker :

Hello everyone! New member here - have found many useful tips & strategies on this site, but was never a member prior to today.

I have a question about seller financing calculations regarding a deal that I'm currently working on.

I'll spare you the full details of the deal, but I've essentially been able to get the seller to open up to a possible seller financing deal that would get me a great cash on cash return of near 20% on a good, solid property on the busiest street in town.

Here's where I'm somewhat stuck (and I hope you can follow). The latest offer we're working on is a purchase price of $400,000. $80,000 down payment due to seller. He wants 10 years of monthly payments around $1,650/mo, then a balloon due at year 10 of $180,000. So total of all payments due to seller would be roughly $458,000. 

Comparing these terms to the best financing I've found through a bank ($320k loan, 5.5% fixed for 10 years then refinance, amortized over 25), with same purchase price and down payment, results in a lower monthly payment by $315/mo, plus my principal balance after 10 years of payments through bank financing would be $240,000, compared to the $180,000 balloon that the seller wants at year 10. 

Given the seller financing details above, I know that an amortization table should show me paying $140,000 principal and roughly $58,000 interest over the 10 years of monthly payments, but how can I calculate the exact amortization schedule with principal/interest breakdown per payment? Guess and check base don various interest rates and amortization period? I'll also post this in the loan section but was hoping someone may have done a deal similar to this in the past and could help! Thank you all!

 Try using Bankrate dot com. You might need to break it into two steps to get the numbers you are looking for. By the way, I only do owner financing, "Subject To", Wraps & Lease Options. Seems to me you should be able to find a deal where you can put only $25k down, take over existing financing, sell to tenant buyers getting $25k down from them and let the tenant buyers pay down your loan while you get cash flow every month. Then the numbers become irrelevant except when you are sipping ice tea in Scottsdale at a world famous resort pool during the winter months and you are comparing the two income streams. Your plan is "good" but consider looking at "better" and "best".

@Joseph Parker I use several different types of mortgage calculators but Karl's Mortgage Calculator is a free app you can put on your phone and it's super useful for this type of thing.  Just google "mortgage calculator" and several will come up.  The one on bankrate is pretty useful too.

I would also share the same thoughts that @Mike M. has as well.  I think you should either be getting a little better terms on the owner financing or just going with a 30 year mortgage.  With 20% down you should absolutely be able to find a 30 year fixed rate....although, I don't know your financial/credit situation...but getting a 30 year fixed rate, especially early on, will help you qualify for more deals in the future.  You'll also cash flow better.  If your situation means that you can't get a 30 year fixed rate mortgage then maybe the 25 year loan would be a good 2nd option.  Then you have more cash flow.  Just a thought.

Tag us if you have any more questions on this subject though.  We are here to help.  Thanks!

@Andrew Postell With this being a commercial property, and non-residential, I'm unable to get a 30 year or even 25 year fixed rate mortgage, at least from what I've found and heard from others. Best option I've had is 25 year amortized, 5.5% fixed for 10 years then refinance, with 30% down from a local credit union. Local banks have been 20 year amortized, 5.5% with rate adjustment every 5 years, 20% down. Payments on seller financing option $300-$500 less than bank financing, plus much less principal remaining after 10 years with balloon payment versus the bank loan. Believe me, I'd go the long fixed route if it was feasible! 

The seller owns this property free and clear, and was very, very turned off by any idea of seller financing at first. He wanted to sell it outright for X amount. Through the listing agent, we've at least been able to explain the benefits of seller financing to him in terms of no immediate capital gains taxes, a steady stream of income for 10 years plus the balloon payment at year 10, netting him over $58k in interest. He's now considering it. I am personally choosing to put 20% down ($80k) to get the deal to work, as that's what I would've had to put down, at minimum, with bank financing.

I did get some help yesterday from another BP member. My current offer with the numbers above would include a 10 year, 3% fixed rate loan on the $140,000, plus a 2nd (Interest-Only) loan, 10 years at 2% for the $180,000 balloon payment. It worked out perfectly when creating the amortization schedule, and banks wouldn't be able to come close to those terms.

@Joseph Parker ah, no problem sir.  I didn't see any commercial reference in the initial post and I should have asked.  No worries. Thanks for the clarification.

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